Five has pulled out of Project Canvas - the development of an internet-connected TV set-top box.
The channel, which has been put up for sale by parent company RTL, is reviewing its digital strategy and does not see the project as a priority.
Its share of the £16m scheme is likely to be funded by partners the BBC, ITV, BT, Channel 4 and TalkTalk.
The BBC Trust approved Project Canvas last month saying it offered licence fee payers "significant public value".
The service will see a range of set-top boxes available to access on-demand TV services such as the BBC iPlayer and ITVplayer.
